The Truth About War Debts

An answer to misleading statements concerning Allied indebtedness to the United States

LIEUT.-COL. GEORGE A. DREW April 15 1931

The Truth About War Debts

An answer to misleading statements concerning Allied indebtedness to the United States

LIEUT.-COL. GEORGE A. DREW April 15 1931

The Truth About War Debts

An answer to misleading statements concerning Allied indebtedness to the United States


IN ITS leading editorial of December 6, 1930, the Saturday Evening Post expressed itself as follows:

“The American public is again being subjected to a barrage of propaganda on cancellation of war debt. Every so often a rebombardment develops. In the nature of the propaganda, the noise is considerable but the projectiles are few. Such projectiles as strike show evidence of foreign fabrication, with here and there an apologetic American shell based on foreign design. The present bombardment was apparently undertaken because of the European impression that business depression in the United States could be used as an argument for cancellation . . .

“At no point is the propaganda conducted along lines of strictly economic reasoning. The proposal includes a postulation of direct relationship between war-debt settlements and Reparation settlements. The interested Europeans have invented a slogan. ‘A factual, if not a legal, relation,’ binds the war-debt settlements of the United States with the reparation settlements of Germany. This factual relationship is sheer verbal nonsense. The only factual entity lies in the under-

standing between the Germans and the ex-Allies that they will insist on such a relationship—a European concordance of pretense.

“Neither the sums involved, the circumstances under which the obligations were contracted, nor the stipulations in the settlements furnish the slightest warrant for the suggestion of a factual relationship. Nor is a factual relationship in the least demonstrated by the ponderous pronouncement of the official representatives of the European countries. The hope of establishing a factual relation springs not from the transactions themselves, but from a totally different circumstance. The United States entered the War late; on account of which a financial impost is to be applied. Paradoxically enough,

on the face of the propaganda the Germans, who lost the War, in effect agree with the ex-Allies who won the War, that we should be penalized for entering it late . . .

“In the final analysis, therefore, the net result of cancellation would be to transfer the burden from the taxpayer of Germany to the taxpayer of the United States, with the taxpayer of the countries with whom we were associated in the War more or less placidly and, so to speak, complacently witnessing the transition.”

Thus the Saturday Evening Post repeats the ingenious fabrication of half-truths with which from time to time it has sought to becloud the issue whenever popular sentiment in the United States appeared to show any signs of favoring a reconsideration of the war-debt settlements. “A European concordance of pretense,” is the euphonious substitute for “The League of Debtors” chosen by Garet Garrett as the heading for his cleverly misleading article published in the Saturday Evening Post of February 12, 1927, but the arguments remain the same. Every attempt to discuss the desirability or justice of reduction or cancellation of war debts is

represented by what is probably the most powerful periodical of the United States as part of a sinister scheme of “The League of Debtors” to pay German reparations with good American dollars.

Garet Garrett’s article was the first and most comprehensive misstatement of the whole difficult problem which the Saturday Evening Post furnished its ten million readers, but no opportunity has been missed to resurrect from time to time many of its faulty conclusions. In the issue of Christmas week, 1928, an editorial under the title “Borrowers” made almost exactly the same statements as those now quoted. At that time we were told that “The British and French launched an emotional propaganda here (in the United States) and that failed.”

Due to the happy fact that Canada 1ms no share in the British war debts to the United States, there has been a tendency on the part of Canadians to consider the problem as one of merely academic interest in which we are in no way immediately concerned. But evidence is accumulating day by day which indicates that this is one of the most vital international questions of the day, with far-reaching economic consequences of the utmost importance to all the trading nations of the world. Even if only from sentimental considerations, however, Canadians should be in possession of the facts about the British debt settlement with the United States, so that the hundreds of thousands in this country who read the Saturday Evening Post and similar publications may be able to judge for themselves the accuracy of statements like the above.

Americans Who Favor Cancellation

' I 'HE fact is that the United States is not being subjected to any European barrage of propaganda. The arguments which have recently appeared in the United States in favor of cancellation or reduction of the wmr debts cannot be so easily dismissed by waving the wand of prejudice. Let us for a moment examine some of the “apologetic American” arguments “based on foreign design.”

In .January, 1931, Mr. Albert H. Wiggin, head of the Chase National Bank, the greatest bank in the United States, in his address at the annual meeting of that institution said:

“Without commenting on the many arguments on both sides of the controversy, and aside from the question of the justice of cancellation, I am firmly convinced it would be good business for our government to initiate a reduction in these debts at this time.”

Referring to these words of Mr. Wiggin, the New York Evening Post said:

“Some revision of debts or principal is coming more

and more widely to be accepted by the brains of the largest businesses and finance in America.”

Referring to the same speech the New York Times said:

“The problem has begun to assume its real proportion and form in American minds, and to be placed on a right business footing, that is, whether it is better for the Treasury to collect tribute or for trade and industry everywhere to be revived by a reduction of the burden.”

On January 28, 1931, Edward N. Hurley, wartime member of the United States Shipping Board, and later a member of the Great War Foreign Debts Commission, in an address in Chicago urged that the United States should reduce the war debts of the debtor nations.

Honorable Newton D. Baker, the wartime Secretary of War of the United States, expressed his views very definitely as follows:

“The United States is not justified either in morals or in a long view of its own best industrial and commercial interests in adhering to its present policy with regard to the settlement of the inter-allied debts. The time has come when these questions, including the British settlement, ought to be reopened.”

General Pershing, whom not even the Saturday Evening Post would accuse of being an “apologetic American,” has supported the argument that there should be a reduction of the war debts. His own words were:

“It seems to me there is some middle ground where we should bear a certain part of the expense in maintaining the allied armies on the front, while we were preparing, instead of calling all this money a loan and insisting on its payment.”

These are only a few of innumerable statements of a similar nature by men outstanding in the public life of the United States which are so lightly condemned as being of foreign origin. One would think that, with men such as these from one end of the country to the other definitely placing themselves on record in favor of war-debt reduction or cancellation, popular opinion in the United States would quickly follow their lead. But the public of the United States has been so seriously misinformed by many of the largest periodicals that those in favor of revision are frequently looked upon as guileless dupes of ingenious foreign schemers whose settled design is to take money from the pocket of the American taxpayer and throw on him the real burden of paying for the war.

Unfortunately, most of the statements quoted ignore an important factor which cannot be divorced from the discussion of this question. Financiers, statesmen, busineas men, speak of reduction or cancellation as being sound business, and are prepared to support their views. As the New York Times put it:

“The problem has begun to assume its real proportion

and form in American minds, and to be placed on a right business footing—that is, whether it is better for the Treasury to collect tribute from Europe or for trade and industry everywhere to be revived by reduction of the burden.”

While this may be entirely sound and undoubtedly gives comforting indications of a growing sentiment in favor of revision, the justice of reduction or cancellation is also a vitally important factor, and should be in the minds of the American public in considering the problem. If convinced that there was every reason on the grounds of justice that the debts should be reduced or cancelled, it is not to be imagined that the public of the United States would hesitate to do so, but when such insidious propaganda is employed on so large a scale to spread the conviction that there is no justice in the proposals and that reduction or cancellation would only impose a further burden of taxation on the American taxpayer, it is not difficult to understand why statements which rely only on financial expediency meet a somewhat cold reception.

It is because there is so much justice in the suggested reductions or cancellations, apart from any consideration of financial advantage, that such misstatements as appeared in “The League of Debtors,” and subsequent articles and editorials in the Saturday Evening Post, which have been widely quoted in Canada and the United States, should not be allowed to pass unchallenged. We are told by an increasing number of financial experts that cancellation would be good business for everybody; that for Europe it would mean greater buying power and for the United States greater markets. If they are right it is a happy example of justice and financial advantage going hand in hand because justice demands, and always has demanded, that the war debts be treated on a different basis than ordinary international loans.

Leaving the question of whether or not it would be good business to the bankers and economists for the time being, let us review the salient facts in relation to the war debts owing to the United States under the following heads:

(1) The purpose of the loans.

(2) How the loans were used.

(3) How the loans were settled.

(4) The justice of the existing settlements.

Purpose of the Loans

rT'HE reason for raising the loans made to the Allies was stated in the law authorizing them to be “For the purpose of more effectually providing for the national security and defense, and for prosecuting the war.” Some extracts from statements made by leading senators and representatives during the debate in Congress on the establishment of these credits to the Allies, show more clearly than any argument can today

ANDREW W. MELLON The United States Secretary of the Treasury. “It should be said that the obligations of foreign governments have their origin almost entirely in purchases made in the United States, and the advances by the United States Government were for the purpose of covering payments for these purchases by the Allies.”

what the purpose of these loans was in the minds of those responsible at the time for making them.

Senator Cummins :

“I am perfectly willing to give to any of the allied nations the money which they need to carry on our war, for it is now our war. I would give it just as freely as I would vote to equip our army or to maintain our own navy.”

Senator Kenyon:

“I want to say this for myself that I hope one of these loans, if we make it, will never be paid, and that we will never ask that it be paid. We owe more to the Republic of France for what it has done for us than we can ever repay. I never want to see this government ask France to return the loan we may make to her.”

Senator McCumber:

“It is probably true that more than a quarter of a million men are going down to death or being wounded or captured every month during the contest. Therefore while they are suffering to that extent we ought to be mighty liberal in the expenditure of money when we can take no part in the real battle, which today is the battle of the American people.”

Senator Smoot:

“I think that every dollar that will be expended under the provisions of this bill, if it is expended honestly, will be for the benefit of the United States.”

Congressman Madden:

“We are starting out to win a victory, as I understand it, to maintain American rights; and if we can maintain American rights by furnishing money to somebody willing to fight our battles until we are prepared to fight those battles for ourselves, we ought to do it.” Congressman Mondell:

“We can (by these loans) effectively and in the immediate future, arm, strengthen and support those who are, since our declaration of war, fighting our battles.”

Congressman Rainey:

“We are making this loan in order to further our interests primarily in this war, and from the moment when the Congress of the United States declared that a state of war existed between this country and Germany, every blow struck at Germany by any of her enemies was struck also in our interests.”

Congressman Mann:

“I think it is our highest duty in the making of war to give aid to those who are fighting the enemy against whom we have declared war.”

Congressman Fordney:

“Their (the loans) only purpose is to aid them (the Allies) in the best way possible to fight our battles across the sea without calling upon our men to go there.” These were only a few of many similar expressions during the debate preceding the passing of the Act which authorized these advances. Unless one is prepared to distort the normal meaning of simple English words,

there can be no doubt that in the minds of many of the Senators and Congressmen who passed the Act these loans were something more than cold-blooded business transactions, from which the final pound of flesh was to be extracted. What if Germany had won the war? That was still a possibility in the spring of 1917 when these discussions took place. Would the United States have recovered them in that event? Never! The Allies to whom the loans were made would have found themselves in the same financial position as Germany is today. No matter how unlikely it seemed, that unpleasant contingency must have been present in the minds of the men who voted in favor of the loans. As the Act they passed itself stated, it was for the purpose of more effectually prosecuting the war, and the loans authorized did undoubtedly aid tremendously by permitting the purchase in the United States of vast quantities of war material as well as clothing and foodstuffs which enabled the Allies to prosecute the war effectually during nearly fifteen months of American participation that they held no part of the battle line. As Senator Smoot had hoped, the money had been expended “for the benefit of the United States” in fighting a war which was as much their war from April 6, 1917, as it was the war of any of the Allies.

This brings us to the reason why the United States was at war, because that reason lies at the very root of the justice of some reconsideration of these debts. For nearly three years the United States had become increasingly conscious of the fact that their position of splendid isolation from the cares and troubles of a wicked world was no longer a practical possibility. As passenger ships, carrying American citizens, were sent to the bottom month by month without warning of any kind, it became more and more apparent that presidential protests were of no avail, and that if there was to be any security for American citizens and ships, force must be met with force. Hence the wording at the conclusion of their declaration of war removed all doubt concerning the reason for American participation.

“The state of war between the United States and the Imperial German Government which has thus been thrust upon the United States is hereby formally declared; and to bring the conflict to a successful termination all the resources of the country are hereby pledged by the Congress of the United States.”

In his speech asking Congress to declare war, President Wilson said:

“They (the Allies) are in the field. We should help them in every way. We seek no indemnities for ourselves and no material compensation for sacrifices we shall freely make.”

It had become the war of the United States against Germany, and the loans made to the Allies were for the

purpose of waging a common cause, in the result of which the United States was as vitally interested as any other enemy of the Central Powers, and the Allies had President Wilson’s word that the United States “Should help them in every way,” and would seek no material compensation for sacrifices freely made.

How Loans Were Used

rT"'HE first of the numerous articles and editorials in the Saturday Evening Post to deal with this question, “The League of Debtors,” gave an utterly false impression of the way in which these loans were used by the Allies. It said:

“They spent it for such purposes, among others, as to pay off old debts, to pay one another back, to finance the private purchases of their nationals, heavily to feed and clothe their civilians, and particularly to give their own money a fictitious buying power at the expense of the United States.”

Let us read the statement by Mr. Mellon, Secretary of the Treasury of the United States, on page four of the Report of the War Debt Commission.

“It should be said that the obligations of foreign governments, in question, have their origin almost entirely in purchases made in the United States, and the advances by the United States Government were for the purpose of covering payments for these purchases by the Allies.”

What were the purchases? When the Right Honorable Stanley Baldwin, then Chancellor of the Exchequer, met the Debt Commission in W’ashington on January 8, 1923, for the purpose of settling the British debt, he explained how the money was spent in these words taken from the Report of the Debt Commission:

“Let us examine how the debt came into being, and see if that will help us to a solution. This debt is not a debt for dollars sent to Europe, the money was all expended here, most of it for cotton, wheat, food products and munitions of war. Every cent used for the purchase of these goods was spent in America; American labor received the wages; American capitalists the profits; the United States Treasury the taxation imposed on those profits.”

Neither Secretary Mellon nor any other member of the Debt Commission to whom this statement was made questioned its absolute accuracy. Mr. Mellon says that these foreign obligations had their origin almost entirely in purchases made in the United States; Mr. Baldwin says the money was all expended there, most of it for cotton, wheat, food products and munitions of war, yet the millions of readers of the Saturday Evening Post are told that “They spent it for such purposes, among

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The Truth About War Debts

Continued from page 5

others, as to pay off old debts, to pay one another back, to finance the private purchases of their nationals, heavily to feed and clothe their civilians, and particularly to give their money a fictitious buying power at the expense of the United States.”

Are we to believe the statement of the brilliant and highly respected Secretary of the Treasury of the United States or the statement contained in a periodical which still sees in every argument in favor of a reconsideration of the whole question, “An apologetic American shell based on foreign design.”

How Loans Were Settled

piREAT BRITAIN, France, Italy and Belgium separately arranged a settlement of their debts with the United States, under which the whole debt was funded and they undertook to make certain fixed payments annually until 1988 without any division of principal and interest. These words of President Coolidge, removed from their context, have been used extensively to foster the impression that the United States was generous to the Allies in the settlements which were made. He is quoted as saying: “We have extended to them very generous treatment.”

This statement, without the qualifications made by Mr. Coolidge, is generally accepted throughout the United States today. Is it so? As no interest rate is mentioned in the funding agreements it is necessary to estimate the average cost of money to the United States over the whole period of payment to arrive at the present principal value of the obligation which each of the debtor nations has assumed.

We are told by the Saturday Evening Post that, “On a 4.25 per cent basis, France is only to pay fifty per cent, Belgium fifty-four per cent, of the whole debt, interest included. Great Britain is to pay eighty-two per cent, and Italy only pays twenty-six per cent.”

This basis of computation has been largely accepted in the United States, and probably through failure to contradict it, in Canada as well. The first thing that naturally impresses itself when one examines these figures is the disparity between the amount which Great Britain j is required to pay and the amount ! required from the other Allies. If the j settlement was made on the basis of i generosity, then there could be no reason for different treatment for different Allies. The fact is that there never for a moment was any thought of generosity in the settlement of the war debts, and the only consideration in making any reduction was the capacity of the debtor nations, or rather their incapacity, to pay. The Report of the Debt Commission at page sixty disposed once and for all of any myth of “generosity” connected with the settlement of these debts:

“The position of the Debt Commission that the advances were loans to be repaid and that each debt must be funded on the capacity to pay of the particular debtor has been the consistent policy of the United States from the first.”

But why compute the settlement on the basis of 4 If per cent? The figure of 4};j' per cent is obviously used because Liberty bonds issued during the war bore interest at that rate, and it is quite true that the ■money advanced to the Allies was raised J in this way, and if repaid at all should be repaid having regard to that fact. But these were comparatively short-term securities and are being retired and money borrowed by the government in their place on a very much lower basis about three per cent today. Secretary of the Treasury Mellon gave the facts of the case very clearly, and showed how absurd it is to compute the present value

of the funded debt repayments on a basis of 4 \f per cent interest, in a statement which he made to a Committee of Congress on May 20, 1926, when discussing the French Debt. These are his words:

“Although the United States has outstanding a substantial amount of Liberty bonds bearing 4 If per cent interest, a large part of the government’s requirements are now being financed at a much low'er rate. The average cost of money to the United States will probably continue to decline. Securities with high interest rates issued during the war will be paid, redeemed or refunded. If we assume that the average cost of money to the United States for the next sixty-two years will approach a three per cent basis, and if we determine the present value of the French annuity on that basis, we arrive at a figure which would approximate their actual value today. The present value of the French annuity on a three per cent basis is $2,734,000,000. This is approximately eighty-two per cent of the $3,340,000,000 of the French debt.”

Thus on the basis of three per cent interest, which the Secretary of the Treasury of the United States estimates to be the average cost of money for the next sixty-two years, which is the life of the debt as funded, France has undertaken to pay eighty-two per cent of her principal obligation, and not fifty per cent as stated by the Saturday Evening Post.

The payments which Great Britain has undertaken to make until 1988, when reduced to principal and interest, amount to a repayment of the entire principal of her loan from the United States with interest at three and three-tenths per cent. While it is impossible to compute with absolute certainty the average amount it will cost any nation to borrow money for the next fifty-seven years, so high an authority as the Secretary of the Treasury of the United States has said that “The average cost of money to the United States will probably continue to decline.”

Figured on the three per cent basis of the average cost of the money, as used by Mr. Mellon, Great Britain will in fact have paid 104 per cent of the principal which she borrowed. Thus, on the estimated cost of money adopted by perhaps the highest financial authority in the United States, there has been no reduction whatever in the British debt.

This surely disposes of the suggested generosity of the settlement, which makes so many Americans particularly unreceptive to any thought of reduction or cancellation. What President Coolidge actually said when he mentioned the generosity of the settlements in his message to Congress on December 7, 1926, was:

“It is true that we have extended to them very generous treatment, but it is also true that they have agreed to repay us all that we loaned to them and some interest.”

In the case of Great Britain we find that “some interest” which they have undertaken to pay will, according to Mr. Mellon’s estimate, more than meet the average cost of the money to the United States.

Justice of Existing Settlements

AND now, having briefly surveyed the

*■ origin of the loans, the purposes for which they were used and the basis of settlement, let us consider the justice of those settlements in the light of what took place at the time and what has occurred since. The recent editorial from the Saturday Evening Post quoted at the beginning of this article tells us that the proposed reductions are based on the proposition that “The United States entered the war late; on account of

which a financial impost is to be applied.” To borrow the words of the editor, “This is sheer verbal nonsense.”

No “European concordance of pretense” ever suggested that the justice of reduction or cancellation was based on the fact that the United States entered the war late. The statement is not only nonsense; it is maliciously dishonest because it is intended to inflame prejudice against the proposal by a suggested reason which would naturally incense the people of the United States if it had ever been put forward. It never was, however, and undoubtedly never will be.

The “barrage of propaganda” in favor of treating these loans as something a little different from ordinary international debts comes from within the United States and not from outside, and is based on an entirely different proposition than that suggested by the Saturday Evening Post.

General Pershing has stated the position of those favoring a reconsideration of the whole question in the clearest possible terms:

“If it had not been that the Allies were able to hold the lines for fifteen months after we had entered the war, hold them with the support of loans we made, the war might well have been lost. It seems to me there is some middle ground where we should bear a certain part of the expense in maintaining the allied armies on the front, while we were preparing, instead of calling all this money a loan and insisting on its payment. We were responsible, we gave the money knowing it would be used to hold the Bosche until we could prepare. Fifteen months, think of it!”

General Pershing shows quite plainly where the justice of the proposal lies. There is no suggestion of a financial impost because the United States came in late. The suggested reduction is related to the fact that for nearly fifteen months after they declared war in April, 1917, the United States took no real part in the fighting, while the trenches in France and Italy flowed with the blood of nearly three million British, French, and Italians, who had been killed or wounded in that time fighting the enemy of the United States.

The able and popular commander of the 27th Division, General John F. O’Ryan, expressed his opinion in these words:

“Almost all of the senior officers of the army feel that we have a narrow viewpoint of the foreign debts. We entered the war in partnership with Britain and France against a common enemy and we were expected to play a man’s rôle. We were not ready. Fourteen months elapsed before we took over a section of the line, and in the meantime our third of the line was held by British and French. They did the dying.”

Garet Garrett tells us that “There never was a time when money was our only contribution. The thought is absurd and stultifying.”

In an article in the Saturday Evening Post of April 5, 1930, entitled “A Few Kind Words for Uncle Sam,” Mr. Bernard M. Baruch, wartime chairman of the Shipping Board, repeats with only minor variations the statements already made by Mr. Garrett. He says: “The sinews of war are five—men, money, materials, maintenance (food), and morale.” All these he assures his readers were supplied in abundance and with incredible rapidity by the United States.

Well, however absurd and stultifying the thought may be, the cold inescapable fact remains that for nearly fifteen months the United States was not even making a contribution of money to the common cause. True, vast sums were being expended in training which resulted in a very substantial contribution when

the American Expeditionary Force reached the battle line. But a war is won by fighting and not by preparation, although preparation is obviously necessary, and therefore it is not unfair to say that neither men, money, materials nor maintenance were used against the enemy until the enemy were actually engaged or until they were contributed to someone else to use. Men, materials, and maintenance were not supplied to the Allies, therefore their actual contribution to the winning of the war only came with the arrival of American troops at the front, for most certainly money was not “contributed” if it was simply loaned to be repaid with interest.

In spite of the ingenious arguments of Mr. Garrett and Mr. Baruch, they are deluding themselves as well as the public when they argue that the sinews of war were contributed from the day the United States declared war. If that argument holds good, it would be equally arguable that the United States would have contributed to the winning of the war even if no men, money, materials or supplies had ever reached the front. And on the other side, military nations like France and Italy could fairly say that the money spent on training for years prior to the war was a contribution, as it corresponded to what the United States did after they entered the war.

Neither proposition is tenable. The simple fact is that each nation contributed to the winning of the war to the extent that it employed the sinews of war in contact with the enemy. And the United States did not employ the sinews of war in contact with the enemy to any considerable extent for nearly fifteen months after they accepted the gage of battle forced on them by Germany.

Is this unfair and has this fact no bearing on the justice of the war debt settlements? General Pershing, who commanded the American Expeditionary Force, has answered that question in the words which have already been quoted.

While Uncle Sam Prepared

' I 'HE belief has been carefully cultivated in the United States that their effort was a miracle of efficiency and that troops reached the front far more rapidly than had been expected. Citing the American effort as a model to be followed and contrasting it with that of other nations, Mr. Baruch tells us that, with the United States alone, there was no suggestion of incompetency or dishonesty in the whole conduct of the war.

With this picture constantly before them, the American public naturally feels that there is very little merit in the suggestion, even by General Pershing, that some consideration should be shown in regard to these loans other than on a purely business basis. And for that reason it is necessary to point out that, far from being a model of efficiency, the organization of the American Expeditionary Force as a fighting unit in France suffered from delays and disappointments that had a very direct bearing on the burden their Allies were forced to assume.

General Pershing says in his book on The Great War published early in 1931:

“Our situation as to numbers of troops, supplies and construction at the close of the year (1917) was not what we had every reason to expect after having been at war since the previous April . . . One is forced to the conclusion that the War Department, at least during this period, was inefficient and not alert, or that it did not appreciate the urgency of the situation.”

And what of the Senate Committee Report of August 22, 1918, which stated that practically the whole of the original appropriation of $640,000,000 for the construction of aircraft had been wasted through departmental dishonesty and inefficiency, and that not a single American airplane had reached the front by July 1, 1918, fifteen months after they

had declared war. In the meantime ' Britain and France were meeting the Germans in the air and spending their millions for the necessary replacement of machines.

These facts have been forgotten by a great many people in the United States because from the very beginning a large part of the American press so exaggerated the part played by their troops, and have continued to do so ever since, that they are not prepared to accept the figures which show so conclusively that there were compensating factors which more than wiped out any obligation for these loans, if service rendered in a common cause were reduced to their value in dollars and cents. As early as February, 1918—-ten months after the United States entered the war—General Pershing had reason to complain of the effect of such exaggeration when he cabled as follows to the United States War Department:

“Newspaper clippings from United States here to effect that United States has thousands of fliers in France and that thousands of American airplanes are flying above American forces today. As a matter of fact, there is not today a single American-made plane in Europe. In my opinion, such bombastic claims in the American press have had the effect of materially stiffening German production.”

And for five months more it was the Allies who bore the burden of that increased production alone. Perhaps the above Senate Committee Report and General Pershing’s cable together emphasize as clearly as anything could why it is necessary to recall some of these facts today.

Just let us recall a few of the things that happened during those fifteen months that Britain, France and Italy fought while the United States prepared in safety secured by the sacrifices their Allies were making. The latter lost nearly 3,000,000 men killed and wounded; they fired over

200.000. 000 rounds of artillery ammunition (the United States fired about

6.000. 000 at the front during the whole war); they lost nearly 10,000 airplanes; they lost hundreds of tanks; thousands of guns were worn out and destroyed; billions of dollars were spent in equipping and feeding their troops, a very considerable part of it in the United States for wheat at $2.40 a bushel, and the products of their factories at two and three times peace-time prices; and all this in waging a war that, during those months had been as much a war between Germany and the United States as between any of the warring nations.

And let the United States remember, in spite of misstatements in the Saturday Evening Pont and elsewhere, that if the loans were ordinary international debts and are to be repaid on that basis, the United States during those weary months contributed practically nothing in men, money, materials and maintenance, to the actual fighting of the war.

To suggestions that this factor should be considered, the answer is frequently given: “But if these loans had not been made, Allied finances would have collapsed so that the moral factor lies in the other direction.”

The answer to this is obvious. The United States was at war when these loans were made, and if for the sake of argument it is assumed that Allied finances would have collapsed, the disaster would have affected the United States as much as the Allies.

The same answer applies to the criticism of Garrett and Baruch that a small part of the British loan was used to stabilize the pound. If the buying power of the pound had tumbled and with it the franc and the lira, what would have happened in the United States? With the markets of the world closed, there would have been incurable depression instead of unprecedented prosperity. The money was spent in the United States at prices which included a tremendous profit, and during that same period the Allies also

spent colossal sums in the United States that were not borrowed. The loans were good business all around, and their advantage to the Allies was fully balanced by their effect in the United States.

If Germany Had Won

XTO SENSIBLE person has ever questioned for a moment the moral effect of the entry of the United States into the war, nor the value of the contribution which they ultimately made. These incontrovertible facts are only presented to meet misstatements used deliberately to becloud the war debts question, and to remind Canadians and Americans that the American Expeditionary Force assumed its share of the burden much later than the Allies and General Pershing had expected.

During those months of waiting there was serious trouble in the French Army; and the British were forced to undertake the hopeless Flanders battles, culminating in the glorious hut fruitless victory of the Canadians at Passchendaele in order to prevent the possibility of a major attack by the Germans on the French front. When we speak of morale therefore—and j undoubtedly the United States made ! substantial contributions in that respect before the war ended—let us not forget the stout-hearted British who restored the French morale by the autumn of 1917 through their vigorous offensive in the North, and made it possible for the Allies to maintain a united front during the months of waiting for the American troops to arrive.

Then in October, 1917, six months after the United States entered the war, the Italians collapsed at Caporetto and the Austro-German army swept down the Venetian plain. Britain and France each sent five divisions immediately to support the Italians and help to restore their morale. It was there that a young Canadian, Major W. G. Barker, and his colleagues of the Royal Air Force, wrote history across the skies of Italy, and did so much to raise the spirit of the weary troops along the Piave by regaining the supremacy of the air which the Austrians had ranged at will after the loss of most of the Italian aerodromes south of the isonzo.

In March of 1918 came the beginning of the final German offensive which lasted till July. The United States had then been at war for nearly a year, but through the critical battles of those four fateful months, when the British and French lost nearly a million men, right up till the turn of the tide in July, the American contribution of manpower was limited to ' the brief service of five divisions attached to the British and French, and their total i loss was less than 10,000.

By that time there were nearly 1,000,000 American soldiers in France. If the Germans had broken through, what would have happened to them? They were not yet completely equipped. But why speculate? That contingency was avoided by the fighting and the dying of the British, French and Italians, and by their almost incredible expendij ture of material, much of it bought in the I United States with money that is now being collected as an ordinary international debt. Is it any wonder that General Pershing said:

“If it had not been that the Allies were able to hold the line for fifteen months after we had entered the war, hold them with the support of the loans we made, the war might well have been lost . . . Fifteen months; think of it!”

And then think of what the position of the United States would have been—at war with victorious Germany, still unprepared, and with the ocean highway no longer protected by the mighty British fleet. Think of it carefully. The American soldiers in France, cut off from support, would have cost the United States a tidy sum before they were restored. There would have been no war debts collected

from the Allies then, and with the naval strength Germany would have acquired with victory, the United States would have had no choice but to make terms, and with her vast expansion of wealth through the war there was no question of ability to pay. These things did not happen because the Allies spent their men and treasure without stint during those long fifteen months. And yet we are told that the debts incurred during those months are to be treated as ordinary international loans.

But in spite of the justice of their position Britain is undertaking no “barrage of propaganda.” That is a fiction of the Saturday Evening Post. On February 8, 1931, Premier Ramsay MacDonald stated in the House that no such proposal would be made to the United States. The suggestion comes from “apologetic Americans” like General Charles G. Dawes, one time vice-president of the United States, who as late as February 2, 1931, said:

“We failed to supply almost evèrything except magnificent soldiers, whose deeds honor the United States. We had 2,000,000 soldiers 3,000 miles from our home base, supplied with little munitions, no horses, a few rifles, artillery and not a single airplane. It was then that I realized the greatness of the British Government and her glorious army. I have never found it expedient to fail to mention the glorious French and British armies, and those of the other Allies, but many politicians often ignore the greatness of sacrifice and effort and the tremendous results achieved by Britain.”

As early as 1920 Britain suggested the cancellation of all war debts and the reduction of German reparations as the surest method of restoring economic stability throughout the world. This proposal is still hailed by the Saturday Evening Post as the “European concordance of pretense,” designed to shift German reparations to the American taxpayer.

The Situation Has Changed

TT IS perfectly true that if the proposal

which Britain then made were carried out, the United States would receive that much less every year. But Britain would not he increasing her national revenue by this device. On the contrary, she would be forgiving debts to her which are more than twice her debt to the United States. Germany is undoubtedly the nation which would first benefit. Britain’s opinion then was that if this were done, Germany’s buying power would be increased, and so in turn would France’s, Italy’s, and her own. Then, with a prosperous Europe, the markets of the United States would he increased and any annual payments lost by this arrangement would quickly be more than made up by increased business all around. The soundness of the proposal is now supported by most of the great economists of the United States. As President Nicholas Murray Butler, of Columbia University, puts it:

“What shall it profit a nation to collect war debts in cash and lose twenty times their amount in value in industry and trade?”

In answer to this proposal, President Wilson wrote to Lioyd George in 1920:

“It is highly improbable that either the Congress or popular opinion in this country would ever permit a cancellation of any part of the debt of the British Government to the United States in order to induce the British Government to remit in whole or in part, the debt to Great Britain of France or any other of the Allied governments; or that it would consent to a cancellation or reduction in the debts of the Allied governments as an inducement toward a practical settlement of the reparation claims.”

The suggestion was that if Britain and France wished to reduce reparations they could do so, but that this must be done independently of any discussion of the

war debts. How could it be? Britain and France are burdened with taxation beyond the imagination of the American taxpayer, as a result of their colossal sacrifices and material losses—France on land, and Britain with her 8,000,000 tons of shipping sunk at sea—and yet they are told that if they believe it is good business for everybody that Germany should once more become prosperous, then they may forego reparations but must continue paying the debts. It can’t be done. It would mean national bankruptcy. The relation between war debts and reparations is a very real fact indeed to Britain and France. And this is the “factual relationship” which the Saturday Evening Post ridicules as part of the “European concordance of pretense.”

There never has been a suggestion except by the Saturday Evening Post that there should be any offset to the loans because the United States entered the war late. The offset suggested by those Americans who have been quoted, and thousands upon thousands who might be quoted, is based on the belief that some consideration should be given to what it would have cost the United States if they had borne anything even moderately approaching their share of the burden during the time the United States was at war. And apart from the actual cost, they remember too that during that time alone Britain lost more than 1,800,000 men as compared with 300,000 American battle casualties. There is no suggestion of reducing these human losses to a money value, or of capitalizing the national obligation to the widows and dependents. The figures only indicate the relative share of fighting while the United States was at war.

The argument is often heard that these loans were never treated by the Allied governments on any other basis than as ordinary international debts, and that when the war was over voluntary settlements were made which they now seek to repudiate. But even if it were conceded that the Allied nations expected to be able to repay the United States in full, and that the statements of the members of the Senate and Congress, who expressed their views in regard to the purpose of the loans, meant nothing, there is still an extremely important consideration which must not be overlooked.

The whole picture has changed. When the war ended the European nations looked for the early return of their old prosperity. England imagined she would soon be trading with the world as she was before the war, and that, with her factories humming, there would be sufficient business to meet even the colossal obligation of half a million dollars a day which she had undertaken to pay the United States for more than sixty years to come. But the English did not realize the difficulties they had to face. The dislocation of industrial organization in the Allied countries to meet the extraordinary demands of war production, and the staggering loss of skilled artisans, had left them in a position where the United States was able to capture their most profitable markets while reorganization was under way. For this reason unemployment in England has become a serious problem. The unemployed must be fed, and from the earnings of those who are employed sufficient must be taken to provide for them in addition to all normal taxes. Then on top of this, a further half a million dollars a day must be set aside to meet payments to the United States for a loan from which the British people received no lasting benefit, other than the help it gave in waging war on behalf of themselves and the United States.

All this burden must in the end be added to the cost of production, and England’s position as an industrial exporter—which is her very life—becomes more and more difficult. Is it surprising that there are those who wonder at the strange anomaly presented in the atti-

tude of the United States toward the Allies and Germany? Although a direct loss of $22,000,000,000 was forced on the United States by Germany, the United States claims nothing from them. That loss the taxpayer of the United States assumed as a generous national gesture in the interest of the restoration of European stability. But to England, the victotious Ally which owed $4,250,000,000 for money spent in the United States, no consideration was given, although she expended considerably more than any of the Allies in waging the war, and loaned nearly $10,000,000,000 to her Allies for war purposes, which she offers to wipe out if the United States will cancel the British debt. In the face of these facts, it is absurd and dishonest to suggest that the British are trying to “put something over” on the United States.

German Payments Reduced

ANOTHER change which has taken ^ place since Great Britain funded her debt payments to the United States is that German reparation payments have been very greatly reduced from those originally fixed. In this regard a very general misunderstanding, which was probably never intended, has been created by the statement by Secretary Mellon that, with German reparations and payments from her Allies, Great Britain will each year receive at least as much as she pays the United States. This has been taken to mean that Great Britain suffers no hardship in making these payments, and conveys the impression that reparations were intended for the purpose of paying national debts.

The reparations were intended only to replace to some slight extent the material damage suffered, not to pay war debts. In the case of Great Britain they would have helped to replace the 8,000,000 tons of merchant shipping lost in carrying all those things that were necessary, not only for herself but for her Allies, including the United States. Many Americans have forgotten that during the time the United States was at war, Great Britain lost approximately 5,000,000 tons of shipping as compared with 395,000 lost by the United States. The figures all downthe line are equally amazing. One item alone furnishes an impressive illustration of the difference in war expenditure and why Great Britain. could well use reparations for other purposes than the payment of war debts. The cost of the shells fired by the British artillery in action exceeded the cost of those fired by the American artillery by almost exactly the amount of the British war debt to the

United States and they were fired against a common enemy.

Apart from the position of any of the other debtor nations, surely these facts begin to make it apparent why Great Britain, which poured its treasure into the common cause to a far greater extent than any of her Allies and has not repudiated any of her debts by the device j of a depreciated currency, should be entitled to some consideration without the necessity of asking for it.

There is a challenge which the United States must squarely face —not from “The League of Debtors,” but from the i record of the debates in Congress, which show what was in the minds of those who made the loans and from the events which have taken place in the past few years. It is an insult to the proved generosity of the American people that war debt revision should rest solely on the ground that it is “good business.” "We have been assured by the highest financial authorities in the United States that the American taxpayer would not lose by the cancellation of those debts; that, on the contrary, the loss of this source of revenue to the national treasury would be more than met by the increased business which would immediately follow. Secretary Mellon himself has said, “The entire j foreign debt is not worth as much to the American people in dollars and cents as a prosperous Europe as a customer.”

But the challenge is on a higher plane than that. The United States is confronted with the injustice of a settlement j which had no regard to the expressed j purpose for which the loans were made and did not consider the overwhelming counterbalancing factors which have been obscured by exaggerated pictures of j American participation and misstatements such as those quoted.

The war debt question is far from being a dead issue. It is one of the livest international issues in the world today. To j the United States is given a wonderful ! opportunity to prove their generosity by accepting the justice of revision based on the facts of the case. In accepting the principle, there is every reason to believe that they would pave the way to an era of prosperity such as the world has never known and by removing a sincere feeling of injustice from the minds of the debtor nations, establish “a concordance of good ! will” that would contribute to the assurI anee of lasting peace more than any | number of covenants and conferences, j No nation in the history of the world has ; ever had it in its power to do so much j good in so short a time and at no ultimate j cost to itself. Will the United States j accept the opportunity?